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Islamic Banking Glossary

Islamic Banking Glossary

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Published by azherj
Glossary of Islamic Banking
Glossary of Islamic Banking

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Published by: azherj on Dec 04, 2008
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08/14/2010

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1
GLOSSARY
 
ON ISLAMIC BANKING
 
 Amanah ():
 
It refers to deposits in trust. A person can hold aproperty in trust for another, sometimes by express contract and sometimesby implication of a contract.
 Amanah
entails absence of liability for lossexcept in breach of duty. Current Accounts are regarded as
 Amanah
(trust).If the bank gets authority to use Current Accounts funds in his business,
 Amanah
transforms into a loan. As every loan has to be repaid, banks areliable to repay full amount of the Current Accounts.
 Arbun ():
 
Down payment; a nonrefundable deposit paid by abuyer retaining a right to confirm or cancel the sale.
 Al-Aariyah (Gratuitous loan of non-fungible objects) ()
 
 Al-‘Aariyah
means loan of a particular piece of property, the substance of which is not consumed by its use, without anything taken in exchange, Inother words, it is the gift of usufruct of a property or commodity that is notconsumed on use. It is different from Qard that is the loan of fungible objectswhich are consumed on use and in which the similar and not the samecommodity has to be returned. It is also a virtuous act like Qard. Theborrowed commodity is treated as liability of the borrower who is bound toreturn it to its owner.
 BaiMuajjal ():
 
Literally it means a credit sale.Technically, a financing technique adopted by Islamic banks that takes theform of Murabaha Muajjal. It is a contract in which the seller earns a profitmargin on his purchase price and allows the buyer to pay the price of thecommodity at a future date in a lump sum or in installments. He has toexpressly mention cost of the commodity and the margin of profit ismutually agreed. The price fixed for the commodity in such a transactioncan be the same as the spot price or higher or lower than the spot price.
 Bai
′    ′    ′    
Salam ():
 
Salam
means a contract in which advancepayment is made for goods to be delivered later on. The seller undertakes tosupply some specific goods to the buyer at a future date in exchange of anadvance price fully paid at the time of contract. According to normal rules of the
Shariah
, no sale can be effected unless the goods are in existence at thetime of the bargain, but
Salam
sale forms an exception given by the HolyProphet (SAW) himself to the general rule provided the goods are definedand the date of delivery is fixed. It is necessary that the quality of thecommodity intended to be purchased is fully specified leaving no ambiguityleading to dispute. The objects of this sale are goods and cannot be gold,silver or currencies because these are regarded as monetary values exchangeof which is covered under rules of 
 Bai al Sarf 
, i.e. mutual exchange is handto hand without delay. Barring this, Bai
Salam
covers almost everythingwhich is capable of being definitely described as to quantity, quality andworkmanship.
 
2
 Bai
′    ′    ′    
bil Wafa ():
 
Sale with a right in the seller, having theeffect of a condition, to repurchase (redeem) the property by refunding thepurchase price. According to majority of 
Fuqaha
it is not permissible.
 Daman ():
 
1) Contract of guarantee, security or collateral; (2)Responsibility of entrepreneur/manager of a business; one of two basicrelationships toward property, entailing bearing the risk of its loss; compare
 Amanah
.
 Dayn
or Debt ()
A
 Dayn
comes into existence as a result of any other contract or credittransaction. It is incurred either by way of rent or sale or purchase orin any other way which leaves it as a debt to another.
 Duyun
(debts)ought to be returned without any profit since they are advanced to helpthe needy and meet their demands and, therefore, the lender shouldnot impose on the borrower more than what he had given on credit.
 Falah (  ):
 
Falah means to thrive, to become happy or to have luck and success. Technically it implies success both in this world and in theAkhirah (Hereafter). The Falah presumes belief in one God, the apostlehoodof Prophet Muhammad (Peace be upon him), Akhirah and conformity to theShariah in behaviour.
 Fiqh ():
 
Islamic law. The science of the Shariah. It is an importantsource of Islamic economics.
Gharar ():
 
It means any element of absolute or excessive uncertaintyin any business or a contract about the subject of contract or its price, ormere speculative risk. It leads to undue loss to a party and unjustifiedenrichment of other, which is prohibited.
 Al Ghunm bil Ghurm ():
 
This provides the rationale andthe principle of profit sharing in Shirkah arrangements. Earning profit islegitimized only by engaging in an economic venture, risk sharing andthereby contributing to the economy.
 Hadith (see Sunnah) () Halal ():
 
Anything permitted by the Shariah.
 Haram ():
 
Anything prohibited by the Shariah.
 
3
 Hawalah ():
 
Literally, it means transfer; legally, it is an agreementby which a debtor is freed from a debt by another becoming responsible forit, or the transfer of a claim of a debt by shifting the responsibility from oneperson to another – contract of assignment of debt. It also refers to thedocument by which the transfer takes place.
 Hibah ():
 
Hibah means Gift.
 Ijab ():
 
Offer, in a contract; see also qabul.
 Ijarah ():
 
Letting on lease. Sale of a definite usufruct of any assetin exchange of definite reward. It refers to a contract of land leased at afixed rent payable in cash and also to a mode of financing adopted byIslamic banks. It is an arrangement under which the Islamic banks leaseequipments, buildings or other facilities to a client, against an agreed rental.
 Ijarah-wal-Iqtina():
 
A mode of financing, by wayof Hire-purchase, adopted by Islamic banks. It is a contract under which theIslamic bank finances equipment, building or other facilities for the clientagainst an agreed rental together with a unilateral undertaking by the bank orthe client that at the end of the lease period, the ownership in the asset wouldbe transferred to the lessee. The undertaking or the promise does notbecome an integral part of the lease contract to make it conditional. Therental as well as the purchase price are fixed in such a manner that the bank gets back its principal sum alongwith with some profit, which
 
is usuallydetermined in advance.
 Ijtihad ( 
):
It refers to an endeavor of a qualified jurist to deriveor formulate a rule of law to determine the true ruling of the divine law in amatter on which the revelation is not explicit or certain, on the basis of Nassor evidence found in the Holy Qur’an and the Sunnah. Express injunctionshave no room for Ijtihad. Implied injunctions can be interpreted in differentways by way of inference from the accepted principles of the Shariah.
Illah ():
 
It is the attribute of an event that entails a particular Divineruling in all cases possessing that attribute. ‘Illah is the basis for applyinganalogy for determining permissibility or otherwise of any act or transaction.
 Ijma():
 
Consensus of all or majority of the leading qualified jurists on a certain Shariah matter in a certain age.
‘Inah
 
( A kind of 
 Bai
)
(
 ):
 
Double sale by which the borrowerand the lender sell and then resell an object between them, once for cash andonce for a higher price on credit, with the net result of a loan with interest.
Inan (A type of Shrikah) ():
 
It is a form of partnership inwhich each partner contributes capital and has a right to work for thebusiness, not necessarily equally.

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